Upon entry into the European Union (EU), countries become members of the Economic and Monetary Union (EMU), with a derogation from adopting the euro as their currency. This paper examines likely economic developments and policy challenges for the five former transition countries in central Europe (the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia) which joined the EU in May 2004. These economies operate independent monetary policies but have not yet achieved policy convergence with the rest of the euro area.